CRITICS of Tony Abbott’s parental leave scheme argue the money would be better spent on childcare.

More money for childcare! What feminist could possibly object to that?

Unfortunately, it turns out that simply throwing more money at the problem is no solution at all.

An excellent report released this week by financial services firm AMP and the National Centre for Social and Economic Modelling titled “Childcare affordability in Australia” has labelled government childcare subsidies a “double edged sword” — easing affordability but pushing up prices.

It’s just like the first home buyers grant — well meant — but exacerbating the very problem it is designed to solve — high prices. As any economist can tell you, anything you do to increase demand without also boosting supply has the impact of simply pushing up prices.

There can be no doubt that childcare costs have risen rapidly — by 44 per cent over the past five years — making it the fastest rising consumer cost after tobacco and utilities.

However, the net cost to parents has changed very little. Childcare as a percentage of disposable incomes has actually dropped.

Turns out taxpayers have been picking up the tab. The annual cost of government childcare subsidies has grown from less than a billion at the turn of the century to about $5 billion a year. And the cost is only expected to grow. The two main subsidies for parents are the childcare benefit — which is means tested and directed at low income earners — and the childcare rebate — which is non-means tested and pays parents 50 per cent of out of pocket costs up to an annual cap of $7500.

Childcare ... is an ongoing financial strain on Australian families. Picture: ThinkStockSource:Supplied

According to NATSEM, such subsidies will do little to solve the underlying problem of childcare affordability and availability as long as childcare centres can simply push up their prices — potentially fattening their margins, rather than simply recouping costs.

“While childcare subsidies have contained out-of-pocket costs, it’s likely they have contributed to an increase in the gross cost of child care, requiring greater assistance and so the cycle continues. The ability of Government assistance to improve affordability and female participation in the workforce is considerably compromised by the ability of child care providers to react to increased subsidies with increased prices.”

In some ways, it shouldn’t surprise us that Australia’s childcare system is a mess. After all, formal childcare itself is a relatively new phenomenon, made necessary by the migration of women into the workforce. In 1970s, just 44 per cent of women participated in the workforce. Today it’s 59 per cent

The underlying drivers of Australia’s childcare crisis are this rapid growth in demand — as more women enter the workforce — and the intrinsically high cost of supply. Unfortunately, there are limits to what we can do to tackle either side of the supply and demand equation.

To some extent, we need to accept that childcare is always going to be expensive. By far the biggest cost is labour. As any parent can attest, childcare is a labour intensive business.

We shouldn’t be trying to screw childcare workers on their wages. We want to pay them a decent salary to attract high quality carers. As a society we should be investing in their skills and education. We should also aspire to have low carer to child ratios at childcare centres. Who doesn’t want the best for their children?

Looking for another solution ... subsidies are an issue. Picture: ThinkstockSource:News Limited

I doubt those arguing for a relaxation of national quality standards for childcare centres are mothers considering putting their children in care. Trying to wind back quality standards will simply lead mothers to stay at home to provide the level of care they feel is needed. Cut price childcare is not in anyone’s interests.

But it’s clear our system of subsidising childcare needs to change.

The current dual system of paying a means tested benefit and a universal rebate is confusing and overly complex. As NATSEM and AMP recommend, combining these payments into a single payment — which is means tested and pays a higher percentage rebate to lower income earners — would be both administratively simpler and fairer. Administering the current dual system adds to the red tape faced by child care centres and acts as a barrier to new entrants.

A single payment could also be fairer. Currently higher incomes access a disproportionate share of the childcare subsidies paid by the government. According to NATSEM, only 43 per cent of childcare subsides got to families in the bottom 60 per cent by income.

Families pay an average of $9,315 a year for childcare, of which the government pays for about half. The subsidy is worth about $6000 for low income families and $4000 for high income families — ie. not much difference.

But it turns out low income women are much more price sensitive to childcare costs when deciding whether to return to work. Redirecting childcare subsidies to benefit low income women would have a bigger impact on workforce participation than simply throwing more money at all women.

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